Granada dividend 'could fail tax test'

Forte yesterday cast doubt on whether a special dividend of 47p offered by Granada as part of its pounds 3.8bn hostile takeover bid for the hotels and restaurants company would be allowed by Inland Revenue, writes Mathew Horsman.

The criticisms, dismissed by Granada as "mischief-making", centred on Forte's contention that tax authorities could rule against the plan because shareholders are given an option between a dividend or cash.

"We have taken tax advice that suggests this plan may not be approved," a Forte spokesman said.

But in a statement, Gerry Robinson, Granada's chief executive, said "There is nothing that Forte has said that was not considered by us before we announced our increased offer."

The special dividend was announced last week as part of Granada's revised offer for Forte. The higher bid was worth 362p in cash per Forte share, or 373p in cash and shares. Tax-exempt institutions, including pension funds, could receive up to 385p a share because of the tax credit associated with the special dividend, Granada argued.

Forte also claimed that Granada's plan to sell up to pounds 2bn worth of Forte's assets, including its Meridien and Exclusive hotel chains, would attract pounds 400m in tax. Granada responded that a combination of Granada's "substantial tax cost base" in Forte, the roll-over of gains into new expenditure and the availability of pounds 240m in tax losses which it can carry forward would made the tax consequences of the planned disposals "insignificant".

Meanwhile, Granada made a further attack on Forte's planned share buy- back scheme, which it believes would be earnings negative on profit forecasts. It questioned whether Forte could afford its alternative generous dividend promise of 20 per cent yearly increases in each of the next three years.